Your credit score is used to measure your creditworthiness so that lenders and credit card companies can establish how much interest rate they will charge on your credit and how much they should give you. What most people don’t know is that your credit score will also affect your insurance premiums in a big way. While insurance companies use your age, health, where you live and your rate of accidents to determine your premiums, they first check your credit score and put you in a class before even looking at other factors.
How much will your credit score affect your insurance?
There is no way of knowing exactly how much your credit score will cost you in terms of premiums because insurance companies don’t disclose that to clients. However, a study done by WalletHub shows that people with poor or zero credit pay 53% more than those with an excellent score and in some places that figure goes up to 122%.
Apart from Hawaii, Massachusetts, and California, all other states definitely use your credit score to determine how much premiums you will be paying per month. The argument behind this is that people who are able to manage their money well are also good at managing all other aspects of their lives and hence they pose less risk to the insurance company.
Is it fair?
Well, to the insurance companies it is very fair because they have to protect their interests. Even if you were the one giving out your money to cover someone; you would want them to take responsibility for their action. However, for the person paying the hefty premiums, it is not fair at all. There are many reasons why your credit score could drop and most of them do not mean you are irresponsible and reckless. A person in New York is forced to pay 53 % more premiums that one in California just because their score is low. It is paying for something that hasn’t happened yet and it totally ignores other basic determinants like driving record and location.
How to improve your credit score
If your credit score is already poor meaning it is less than 350, there is not much you can do in terms of getting lower insurance premiums. However, you can take steps to improve your credit score with time the same way you deteriorated it. You can do this by paying your credit on time, getting rid of all small debts including credit cards so you remain with only one, embrace good saving habits and evaluate your life to stop living beyond your means. After a while when your score comes up; you can reapply your insurance and get lower rates.
Taking up insurance requires commitment and a form of maturity to sustain the payments. Though it’s not fair for your past to affect your future, people are called to make responsible decisions especially when it comes to finances so they can have a better future.
For more information about how The Sena Group can help you with any
of your insurance needs, please contact us at 561-391-4661.
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